Business Leasing Lease Finance 7 Park Avenue Financial

Business leasing and lease finance continue to play a main role in your overall equipment acquisition strategies. In Canada the equipment financing industry is very mature and developed, and as a business owner and financial manager you have a number of   financing options. Most lessors are non bank entities and are much focused on certain types of assets and lease types that are offered. 

Let’s examine how you can maximize your chances for approval for your asset finance acquisition. It is important to know how the other side thinks and behaves – That other side is your lessor. Your lessor is motivated in three ways, and if you know those motivations you can focus on maximizing the benefits in leasing and, of course, get approved.

We can safely say that the three motivators for any lease company are the tax and accounting benefits they derive from leasing you equipment, the interest rate they charge you on the transaction, and finally the asset re sale or disposition if the asset is structured as a return to a leasing company.

Let’s focus on lease company motivator # 3 for a moment – the remarketing of the asset. If you do not want to retain ownership of the asset at the end of the lease you are probably going to want to enter into what is known as an operating lease. The key elements of any lease structure are:  term of the lease, interest rate, value of your transaction, the monthly payment, and you obligation at the end of the lease.

Therefore it is important to focus on a firm that specializes in operating leases if you intend to approve the equipment – and getting to the core of our subject matter, your lease approval on an operating lease becomes much easier if you structure a financing that meets both your requirements and the lessors.

We can safely say the most critical element in getting your transaction approved is the overall credit quality that your firm portrays on your lease application and supplemental business info that might be required by the lessor. You should know that the smaller your equipment lease the less attention will be paid to overall credit and due diligence – that just makes sense. In Canada many leases under, say $ 50,000 as an example are credit scored via some basis info that the lessor acquires on your firm or the business owner. This data might be a commercial credit report, a credit report on the owners, and viewing some payment experience with some of your other suppliers.  Small ticket leasing in Canada is very easy to acquire.

The larger challenge comes when you are acquiring assets over the 50k range. If your overall credit and financial position is weak you can well be expected to offer up items such as additional collateral, a down payment, or a guarantee buyback from the vendor.

Your focus on getting approved is the challenge, so you should know that there are different tiers of credit quality, and the lessors adjust the rate on your transaction to reflect the overall credit quality of your business, taking into consideration the asset also.  So if your firm does not have pristine credit you should still be 100% aware that lease financing can still be approved and is available. Factors that now come into play under this scenario are the higher rate, a down payment request, etc.

Clients are always asking how they can position their transaction for approval. The reality is that you are, in many ways, in charge of your own approval. What do we mean by that .Simply by putting together a basic package that focuses on key areas such as your years in business, your ability to make the lease payments in question, your industry experience, etc can often garner a positive approval?

Financial statements may or may not be needed for your lease approval – this often depends on the amount and the policies of that lessor. If you are required to provide financials then the focus will be on historical cash flow. We tell clients that it is a bit of an irony that many lessors use your historical cash flow to approve your future dealings. From our perspective that was then and this is now!

In summary, you as the lessee can be key factor in your business leasing and lease finance approvals .Understand the type of lease you want, position your company in the best light possible by preparing the data we have shared with you that lessors focus on, and be fully aware that lease approvals of any size can be properly structured to make sense for both parties, your firm, and the lessor. Speak to a credible, trusted and experienced business lease financing advisor to ensure you get the approval you need and deserve for equipment leasing in Canada.  

Let’s examine how you can maximize your chances for approval for your asset finance acquisition. It is important to know how the other side thinks and behaves – That other side is your lessor. Your lessor is motivated in three ways, and if you know those motivations you can focus on maximizing the benefits in leasing and, of course, get approved.

We can safely say that the three motivators for any lease company are the tax and accounting benefits they derive from leasing your equipment, the interest rate they charge you on the transaction, and finally the asset resale or disposition if the asset is structured as a return to a leasing company.

Let’s focus on lease company motivator # 3 for a moment – the remarketing of the asset. If you do not want to retain ownership of the asset at the end of the lease you are probably going to want to enter into what is known as an operating lease. The key elements of any lease structure are the term of the lease, interest rate, value of your transaction, the monthly payment, and your obligation at the end of the lease.

Therefore it is important to focus on a firm that specializes in operating leases if you intend to approve the equipment – and getting to the core of our subject matter, your lease approval on an operating lease becomes much easier if you structure a financing that meets both your requirements and the lessor's.

We can safely say the most critical element in getting your transaction approved is the overall credit quality that your firm portrays on your lease application and supplemental business info that might be required by the lessor. You should know that the smaller your equipment lease the less attention will be paid to overall credit and due diligence – that just makes sense. In Canada many leases under, say $50,000 as an example are credit scored via some basic info that the lessor acquires on your firm or the business owner. This data might be a commercial credit report, a credit report on the owners, and viewing some payment experience with some of your other suppliers.  Small ticket leasing in Canada is very easy to acquire.

The larger challenge comes when you are acquiring assets over the 50k range. If your overall credit and financial position are weak you can well be expected to offer up items such as additional collateral, a down payment, or a guaranteed buyback from the vendor.

Your focus on getting approved is the challenge, so you should know that there are different tiers of credit quality, and the lessors adjust the rate on your transaction to reflect the overall credit quality of your business, taking into consideration the asset also.  So if your firm does not have pristine credit you should still be 100% aware that lease financing can still be approved and is available. Factors that now come into play under this scenario are the higher rate, a down payment request, etc.

Clients are always asking how they can position their transaction for approval. The reality is that you are, in many ways, in charge of your own approval. What do we mean by that? Simply by putting together a basic package that focuses on key areas such as your years in business, your ability to make the lease payments in question, your industry experience, etc. can often garner a positive approval?

Financial statements may or may not be needed for your lease approval – this often depends on the amount and the policies of that lessor. If you are required to provide financials then the focus will be on historical cash flow. We tell clients that it is a bit of an irony that many lessors use your historical cash flow to approve your future dealings. From our perspective that was then and this is now!

In summary, you as the lessee can be a key factor in your business leasing and lease finance approvals.  Understand the type of lease you want, position your company in the best light possible by preparing the data we have shared with you that lessors focus on, and be fully aware that lease approvals of any size can be properly structured to make sense for both parties, your firm, and the lessor. Speak to a credible, trusted and experienced business lease financing advisor to ensure you get the approval you need and deserve for equipment leasing in Canada.  

' Canadian Business Financing With The Intelligent Use Of Experience '

 STAN PROKOP
7 Park Avenue Financial/Copyright/2024

Stan Prokop is the founder of 7 Park Avenue Financial and a recognized expert on Canadian Business Financing. Since 2004 Stan has helped hundreds of small, medium and large organizations achieve the financing they need to survive and grow. He has decades of credit and lending experience working for firms such as Hewlett Packard / Cable & Wireless / Ashland Oil